Published 4:00 am, Tuesday, November 30, 2010

Microsoft famously went through the EU wringer earlier this decade, and ended up paying more than a billion dollars in fines. It was also forced to reveal more information about technical protocols used by Windows and other products, and to offer an alternate version of Windows without the Windows Media Player, which nobody bought.

A Microsoft manager who worked on the digital media team during this period explained what Google should expect. (He asked to be quoted anonymously, as all official comments about legal cases are supposed to come from Microsoft's lawyers or public relations groups.)

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The EU will listen to your competitors, but not to you. In the digital media case, the EU seemed to believe what RealNetworks and other competitors told it: that there was a dynamic market for software-based digital media players, if only Microsoft would stop shutting them out. When Microsoft tried to respond by explaining the realities of the market--for instance, PC makers don't want to give customers too many choices of default software because it raises support and manufacturing costs--the EU didn't listen.

You're dealing with regulators, not techies. The EU seemed to believe that removing the Windows Media Player was as easy as uninstalling any other application. When Microsoft tried to explain that the Player had deep ties within the guts of the OS, and asked specific questions like "which DLLs would you like us to remove?" they were met with meaningless answers or silence.

You're subject to new rules now, but you can't know what they are. Software development at Microsoft is always subject to limits: processor speeds, development time, finances, and the laws of physics. When the EU--and the U.S Department of Justice before it--declared Microsoft a monopoly, the company suddenly was subject to new rules. Unfortunately, until the legal cases were finished, Microsoft employees didn't know exactly what those rules were. And there's no way to find out except to be sued and lose.

Don't pretend you're a lawyer. During the EU and DoJ investigations, Microsoft employees had to learn all kinds of things they could previously ignore, like the ins and outs of attorney-client privilege in email. You can't just put a signature file saying "this email is covered by attorney-client privilege" and make it so, as some employees seemed to think. Eventually, Microsoft made all sorts of legal information available to employees, but it took time.

The EU will impose a remedy to save face. The order to ship a version of Windows without the Media Player was never going to work--and this employee suspects the EU knew it. The regulators weren't stupid. But after spending years and millions of dollars of taxpayers' money, the EU couldn't just say "pay a big fine and nothing else has to change." It had to impose a behavioral changing remedy, even if it turned out to be ineffective.

Don't take your eye off the competition. The EU investigation did change how Microsoft does business in some critical ways--the rulings gave the company certain new rules which it now abides by, such as "you must offer consumers a way to remove Windows features" and "no integrating formerly separate products (like Bing search) with Windows without talking to the lawyers." It also showed Microsoft that it needs lobbying power with governments, and couldn't afford the faux-naive "we're just a little technology company" stance that it took in the 1990s. But in the end, competition in the digital media market was restored by competitors, not the EU. One big competitor in particular: Apple. As this employee said "we didn't stop doing PlaysForSure because the EU made us, we did it because we kind of got our asses handed to us."

In Google's case, that means staying focused on Facebook and--yes--Microsoft. Indeed, Microsoft seems to have learned at least one lesson very well: one of the complainants to the EU is a shopping search engine called Ciao, which Microsoft acquired in 2008.